Introduction
Over the past decade, many organizations have invested millions of dollars in the implementation of information systems. Due to the rapid increase of information technology and the rising need of reducing inefficiencies to streamline certain processes within various entities of the organization, it is fair to say that the utilization of information systems, especially enterprise resource planning (ERP), has gained importance. It, therefore, may be seen as an essential solution to consolidate a complete scope of the processes and functions of an organization in order to display a comprehensive picture of the organization from a single information technology structure (Klaus, Gable, Rosemann – IS Frontiers).
The main goal of implementing these kind of information systems from an organization’s point of view, is for them to operate as efficient as possible. The idea behind operating efficiently is to maximize productivity, moderate costs and to fulfil customer needs (NL Bron). It can be concluded that information systems are to be used in every conceivable part or division of an organization.
Nowadays, almost every large organization uses information systems. Out of the companies in the Netherlands that employ 10 to 50 people, only 35 percent use an information system in 2016. Whereas 69 percent of all the companies in the Netherlands that employ more than 250 people use such an information system in 2016. Compared to 2006, this has been a huge increase in the use of information systems. These percentages in 2006 were 9 and 30 respectively.
In the past, when having an information system, it would almost mean that it would lead to a competitive advantage for the company. However, since all organizations in today’s world own an information system it is still essential for new organizations to implement information systems, but not as a prominent prospect to achieve a competitive advantage. This means information systems may used to have a direct effect on the competitiveness of organizations in their relevant market but may now be seen to have an indirect effect on the market share of the company. Nowadays it mainly functions as a tool to create a competitive advantage (BRON).
Information systems can be implemented for several reasons. It has been discussed earlier that the main goal of implementing information systems is to reduce inefficiencies. (BRON) These inefficiencies may happen when making decisions. Therefore it is important that the right decisions are to be made. Decision-making is an important aspect within every organization. The computer-based information systems remain the least studied field in supporting managerial decision making. High-level managers tend to rely on their lower management or their own intuition or experience. (Jones and McLeod 1986).
The decision-making process has become nowadays too complex because of the several factors that have to be taken in account. For example Jose M. Cruz (2008) specifically examined the dynamics of the supply chain networks with corporate social responsibility through environmental decision-making.
As you can see above, information is a crucial part of the decision-making process. Since information is necessary to make decisions and information systems are technology that are required for the processing of information, it can be noticed that there is a relation between information systems and decision-making.
This paper examines the relationship between the information systems and the decision-making process. The research question is as follows:
“What is the role of information systems in the managerial decision-making process?”
It is commonly known that the use of information systems leads to improved management decision-making, whereas there is hardly any scientific prove which supports this statement. This paper will try to examine the benefits of an information system in managerial decision-making.
Furthermore, the practical relevance of this paper is for managers to clearly understand the practical uses of an information system and the benefits it may have on their business.
This paper starts off with a theoretical framework which contains a literature review. Secondly there is a data and a methodology section. Subsequently the findings of the research will be presented and the last part is the conclusion and discussion section for further research.
Theoretical Framework
In the previous section, several topics have been introduced regarding the main research question. Various studies, regarding this topic, already have been carried out and analyzed by various researchers but many studies vary in methodology. Some studies were performed through a case study while other researchers critically reviewed the work of previous researchers. Other studies were carried out through a survey or have been analyzed from a more mathematical point of view. This section highlights the intention of the paper by composing hypotheses that will be tested through a survey. This will be discussed in later parts of this paper. To formulate the hypotheses for this paper, it is necessary to find out what kind of studies already have been performed and to analyze these studies critically.
As formulated in the previous section, the main goal of this paper is to analyze the role of information systems on decision-making. Yet, some studies refer to Decision Support Systems (DSS) or Management Support Systems (MSS). These support systems are subsets of information systems. The results are therefore comparable and generalizable.
To summarize, an information system is a system which provides data or reliable information for managerial decision making. These systems are a combination of people’s interaction with IT supporting activities such as operational, managerial and decision-making processes (Delhi). A more specific information system is for example an Enterprise resource planning (ERP). This system consolidates and unifies data from several sectors of the company into one complete system which can support the needs of employees across the whole company (boek). The main goal of ERP-systems is to coordinate the following key-operations: accounting, manufacturing, purchasing and sales (boek). The foundation of an ERP-systems leads to a well-structured database which can be used for operational needs and decision-making processes across the entire firm (boek).
The importance of information systems when it comes to managerial decision-making has been highlighted by Berisha-Namani (2010) in his review ‘the role of information systems on managerial decision-making: a theoretical approach’. In this review, Berisha-Namani focuses on the possibilities of optimizing the role of information systems. He notices that, over the years, information systems seemed to take up a greater role in managerial activities. A couple of decades ago, information systems were only implemented as a support for operational functions, such as processing accounting transactions (Berisha-Namani, 2010). However, technological progress developed the IT-sector which made it possible for information systems to nowadays function as a ‘strategic tool’ to make decisions for managers (Berisha-Namani, 2010). Effective use of information systems by managers may therefore lead to a gain in ‘power’ which makes it possible for them to run a successful organization.
About the same conclusion has been drawn by 6 researchers who studied the evolution of information systems in ‘the past, present and future of decision support technology’. As mentioned earlier, the role of information system has evolved and improved on decision-making. A form of decision support technology is a decision support system (DSS). This kind of support system is a computer-based information system that supports organizational decision-making activities (Information Builders). Users of DSS seem to expect more and more over the years from these type of systems. While organizations become more complex, frisky and more flexible, it means that DSS have to keep on developing. Constant developing of information systems may eventually lead to improving productivity and profitability of the organization.
Knowing that the development of information system would lead to an improvement in productivity, profitability and effectiveness, it has not always been clear on how to check whether this goal has been reached. For example, it is possible for an organization to reach high profits or sales, because of the competent information system that has been implemented. Yet is has never been clear what the situation would look like when another type of information system would have been used. Clark, Jones & Armstrong (2007) focused upon this unknown effect from a criticized point of view in their review: ‘the dynamic structure of management support systems: a theory development, research focus and direction’. They make a strong difference between the ability of measuring the quality of an information system in the decision-making process and the human influences that arise in the decision-making process. While it is relatively easy to measure the quality of the information system self, to examine the effect of the quality on decision-making means that the results may be biased. This bias arises of the fact that the human decisional process is too difficult to examine (Simon, Newell 1971). It is fair to say that the IT sector is still in lack of easy measures of comparing the quality of different types of information systems on decision-making. Therefore, more information about human influences and human mentality is needed.
“The effectiveness of management information systems (MIS) depends upon their impact on the quality of managerial decision making.”
To examine this statement, Mukhopadhyay (1991) used a micro-economic production function with MIS as an input. More specifically, a management decision production function. He defines information as an attribute that is used to filter ‘probabilistic knowledge’ of situations that will emerge in the future. Attributes of information such as: fineness, timeliness, sufficiency and accuracy, are factors that determine the quality of information. Mukhopadhyay examined whether the implementation of information systems would improve the attributes mentioned above. He concluded that an increased investment in MIS would have a positive effect on the decision accuracy. However, there is no linear relation to be found between an increased investment in MIS and increase in decision accuracy (Mukhopadhyay, 1994). An additional investment in the quality of MIS inputs would lead to a less impact in the quality of the decision (Mukhopadhyay, 1994).
However, not only effectiveness is an important factor of information systems when it comes to decision-making. Making a decision ‘on time’ is another aspect. Since organizations do not have the ability to take all the time they need to make decision, because a lot of time would be wasted, it means a certain time pressure arises. Time pressure may affect the decision-making process in a negative way. Information systems do, however, have the option of relieving some of the time pressure. Lucey (2005) defined that ‘’an information system is a system to convert data from internal and external sources into information and to communicate that information in an appropriate form to managers at all levels in all functions to enable them to make timely and effective decisions for planning and controlling the activities for which they are responsible’’.
Like Lucey (2005) stated, Wang (1994) also considered time pressure to be an important factor in the decision support technology. But in what way do information systems affect time pressure in such way it makes it easier and comfortable for managers to make decisions? Hwang concluded it all had to do with the way the information is exposed. Namely, there is a difference in interpreting information under time pressure when comparing graphics and tables (Wang, 1994). Having to make a choice from these two options, Hwang examined that it is better to use graphics and colors under time pressure than tables.
Since managers frequently come in the position of having to make quick decisions. When the information overwhelms the available time a manager has to evaluate the information, it may lead to making incorrect decisions (Wang, 1994). Although this may seem obvious, in reality this has not always been the case. Other researchers have found situations where an increase in time pressure has led to an improvement in performance. Peters et al. (1984) composed a theory where the overall relationship between time pressure and performance is reflected in an U-shaped line. This U-shaped line shows that an increase in time pressure leads to an increase in productivity up to a certain point. From that point on, the performance and therefore the ability of making just decisions, reduces (Peters et al., 1984). Time therefore plays a significant role in human activities. Time acts as a certain constraint and the fact managers have to make decision within a certain constraint may affect the decision-making process in either a positive or negative way. Every person has different job-related characteristics . Whereas one manager may perform well under pressure, this may lead to positive effects on the decision strategy selection and performance (Wang, 1994). It also may turn up the complete opposite direction, with possible negative consequences for the organization.
The Impact of Executive Information Systems on Organizational Design, Intelligence, and Decision Making written by D.E. Leidner and J.J. Elam discussed the impact of executive information systems on organizations in light of George Huber’s (1990) theory of advanced information technologies.
A survey was used to gather data for answering the research question. The 91 respondents from 22 companies were mostly high-level managers. The survey was used to empirically examine the relationship between the use of executive information systems and the decision making process. The process contains several factors, such as decision making speed, problem identification speed, availability of information and the involvement of subordinates in the decision making.
The findings suggest that both frequency and length of EIS use improved the speed factor in both problem identification and decision making. Another finding was that managers perceive the idea that information was more available when using an EIS. In both findings there was no evidence found that there was a difference between high-level managers or lower-level managers. The researchers found this odd because of the fact that the EIS was often tailor-made for high-level management, so it would be logical if lower-level management was not that pleased with an EIS.
The most surprising finding was the extent of involvement of the subordinates in problem identification and decision making. The involvement of the subordinates stayed approximately the same, while the prediction was that the involvement would decrease. In extreme situations it would even lead to reduction of lower-level managers. The findings in this study rejected these prediction.
There were three limitations in this research. The first one is that the survey was only conducted in firms which used EIS at that time, there were no respondents from firms which discontinued the use of EIS for various reasons. Secondly there was no causality because of the fact that the hypotheses did not test this and the last limitation was the bias of the respondents. The respondents filled the survey in as an informant of their own perception and behavior in the use of the EIS.
This research examines several aspects of the decision making process with the use of an EIS. To empirically study this relationship the researchers chose to conduct a survey. The survey was conducted under 46 executive users of EIS. The research was done by drafting multiple hypotheses for association purposes rather than causality.
The hypotheses predicted the following:
- The more frequent use of EIS, the faster problem identification would occur under executives
- The longer the EIS had been in use, the faster problem identification would occur under executives
- The more frequent use of EIS, the faster the decision-making process would go.
- The longer the EIS had been in use, the faster the decision-making process would go.
- The more frequent use of EIS, the analysis would be of greater extent before the final decision
- The longer the EIS had been in use, the analysis would be of greater extent before the final decision
The findings suggest that the frequency and duration of the use of an EIS are positively associated with the speed of problem identification and decision-making. These findings were approximately the same as the findings in the research done by D.E. Leidner and J.J. Elam An additional finding in this research is the effect on the extent of analysis when using an EIS. Frequency and duration of the use of an EIS are positively associated with the extent of analysis before the final decision.
The findings suggests that the time associated with decision-making decreases, but there has been no comparison with executives that use EIS and those who do not. The researcher generalizes the several types of EIS. For further research the type of EIS can be more specified and used as a variable to research the various effects of the different types of EIS.
This research conducted by Clyde W. Holsapplea and Mark P. Sena examines the connection between ERP-systems and decision support of 53 ERP-system adopters. Traditional ERP-systems focuses more on the recordkeeping and the transactional objectives, rather than on their decision support objectives. This research offers insight in objectives like decision support in the plans of an ERP-system. It also examines the various tools of an ERP and its realization in decision support benefits of an ERP.
To empirically examine the relationship, conducted the researchers a survey. 553 firms were approached, 53 of them responded. The survey was conducted among firms across various industries. Most of the respondents were firm from high technology, automotive, and consumer product. Most of the firms are Fortune 1000 firms.
The most used ERP-systems among the respondents were users of one of the big four ERP-systems: SAP, Peoplesoft, Oracle Applications and J.D. Edwards.
The findings of this survey suggest that ERP-systems do indeed offer decision support benefits. On a scale of 1 to 7, the mean of this subject was 4.38. From the outcome of the survey the researchers concludes that there is a positive correlation between decision support benefits realized and six of the ERP-objectives.
A follow-up research could examine the relationship between ERP objectives and achieved decision support benefits, as this research laid the foundation for further research. This research only reveals the positive correlation between ERP-plans and decision support benefits. However, the research does not explain the practical part of implementing an ERP-system for decision support benefits.
There are several studies performed to analyze the impact of information systems on decision-making. Two papers that have been selected used a case study to empirically test this relationship.
Lorraine Staehr studied the role of managerial agency in achieving business benefits from ERP systems. This case study was performed in four Australian manufacturing companies.
To collect the data, they performed a case study using face-to-face interviews. All of these firms had more than 18 months experience with their ERP system. Several dimension of the ERP-system have been taken into account, such as: Operational, managerial, strategic, IT infrastructure and organizational benefits
The results of this research show that the achieved amount of benefits from ERP-systems differ in the four organizations.
An identical decision made in the companies, led to a different outcome in every company. This can be explained with the context the decision were made in. Due to the context, it is logical that the outcomes were different.
“ERP system led to comprehend new interpretive schemes and shape new structures of signification.”
This function improves efficiency of firms and let them benefit of these ERP-systems.
The major shortcoming in this paper was that only four firms have been interviewed. To conclude whether ERP-systems have a significance to new interpretive schemes, more firms should be examined.
Palaniswarmy and Fraxk examined five manufacturing firms with different ERP-systems. They researched whether ERP-systems do enhance the performance of manufacturing organizations before and after the ERP implementations. To empirically study this relationship, they used a case study with interviews. The questions in the interviews were all open-ended questions.
The studied ERP systems are from SAP, Baan and Oracle. The cases were performed with manager information system directors, chief information officers or ERP implementation directors. These managers were chosen because of their broad overview of technical and business aspects of the system.
Combining different business activities within the firm, and enabling the flow of information across the firm is called a cross-functional integration. In all five cases a better cross-functional integration was seen as a critical success factor of the ERP-system. The findings show that the increase of information availability improve the outcome of the decisions. A second finding was that the ERP-system improved several processes, such as a better coordination in manufacturing activities and a better forecasting accuracy.
Data & Methodology
The ten papers that have been used for this research were obtained from the Association for Information Systems (AIS) and were selected upon two keywords, namely ‘information systems’ and ‘decision-making’. These papers are published in high quality journals and have a minimum impact factor of ‘two’. This indicates that the selected papers have a certain authenticity and reliability.
For this research, a survey has been conducted. This survey was set up to analyze the relationship between information systems and managerial decision-making. About seventy companies have been contacted to participate in the survey. The selection of companies was based upon the way they use their information system to a certain extent. The questions of the survey all were related to the main research question. Certain factors included in the survey were: efficiency, timeliness, costs, strategic position and the stimulation of new approaches when taking decisions. The questions were either to be answered in an open way or to be filled in by a scale from one to five.
Scale Interpretation
One Strongly Disagree
Two Disagree
Three Indifferent
Four Agree
Five Strongly Agree
Interpretation of hypotheses
The results and conclusion of the hypotheses, introduced in the theoretical framework, will be based on the results of the conducted survey.
The following propositions in the survey will be used to set up the results for the first hypothesis:
• The influence of information systems on time associated with making decisions
• The influence of information systems on costs associated with making decisions
• The influence of information systems on the flexibility and efficiency of the organization, regarding decision-making
The first hypothesis, on the relationship between information systems and efficiency, will be rejected if the average value of a surveyquestion is below ‘three’.
The following components of the survey will be used to set up the results for the second hypothesis:
• The information gathered through information systems contribute to a strategic competitive advantage
• The use of information systems stimulates new approaches when making decisions
Both hypotheses have a cumulative requirement. This means that each proposition may have more than one factor, at which all factors have to be sufficed with a minimum of ‘three’.
To see whether the difference is significant to the indifferent result of three, a one sample t-test is used with a 95% confidence interval. This means that significance can be concluded with a certainty of 95%.
The hypothesizes will be rejected if one of the means of the propositions has a significant lower value than three.
Results
For this research, approximately 75 managers from 36 companies have been contacted to participate in the survey. Out of 75, 50 responses were received. The response rate of this survey is 66,7 percent. The selection of managers who were contacted to participate was based on the extent in which they are familiar with information systems such as Oracle and SAP. The range of the occupation of the managers is very wide. Many managers from big enterprises but also small and medium enterprises have participated in the survey. This has its benefits and disadvantages. More on this will be discussed in the conclusion.
Out of all managers who participated in the survey, 58 percent uses information systems to make managerial decisions on a daily basis, while 26 percent uses information systems on a weekly basis, 8 percent on a monthly basis and 4 percent on a quarterly basis and semi-annually basis. Out of all managers who use the information systems, not taking the frequency into account, 82 percent actually uses the information obtained from the information system when making decisions.
First Hypothesis
‘The use of information systems improves the efficiency of the organization when making decisions’
As mentioned earlier, the results of this hypothesis are reflected upon the results from the survey. Efficiency can be studied from different perspectives. For instance when information systems shortens the time associated with making decisions this may tell something about efficiency. The same accounts for costs. Therefore, the survey has included both factors that may be considered under efficiency.
As previously stated, time is a factor to be considered regarding decision-making. For this reason, this factor has been included in this survey. The participants were asked, on a scale from one to five, whether the usage of information systems shortens the time associated with decision-making. Out of all respondents, 40 percent strongly agreed with the fact that the use of information systems shortens the time of making a decision, 36 percent normally agreed while 16 percent were indifferent. Only 8 percent disagreed. The mean of this proposition is 4.08. A remarkable detail is that no participant strongly disagreed with this statement.
After performing the t-test, it can be noticed that the significance level is below 0.05, namely 0.000. It can therefore be concluded that the difference of the mean is significant.
Besides time, costs can also be seen as a factor of efficiency. Therefore, this factor has been included as well. The participants were asked, on a scale from one to five, whether the use of information systems reduces the costs associated with making decisions. Out of all respondents, 26 percent strongly agreed, 40 percent normally agreed, 26 percent were indifferent and 8% disagreed. Just like factor ‘time’, when it comes to costs associated with decision-making, no participant strongly disagreed with this statement. The mean of this proposition equals 3.84, whereas the significance level of the performed t-test equals 0.000. The difference of the mean is therefore significant.
To create a full image on efficiency, besides costs and time, a general question on efficiency has been asked to the participants. It is generally known that by implementing information systems, the flexibility and efficiency improves. Therefore the participants were asked to what extent this statement relates to their own experiences. The results are quite comparable to the factors ‘time’ and ‘costs’. Namely, 38 percent of all respondents strongly agreed with this statement, 44 percent normally agreed while the rest, 18 percent, were indifferent. Remarkable detail: No participant slightly or totally disagreed with this statement. The mean of this proposition equals 4.20, whereas the significance level of this proposition, after having performed the t-test, equals 0.000. Once again, this means that the difference of the mean is significant.
All the information and data regarding the t-test are to be found in the Appendix.
Knowing whether to reject the hypotheses, the mean of the answers of the survey will be used. It was said in earlier statements that a hypothesis will not be rejected unless the means of all three propositions is above three and significant. This is the case, as can be seen in the text above. The hypothesis will therefore not be rejected. The use of information systems indeed improves the efficiency of the organization when making decisions.
Second Hypothesis
‘The use of information systems when making decisions leads to a strategic competitive advantage for the organization’
For this hypothesis, two propositions from the survey are used. These are the following two propositions:
• The information gathered through information systems contribute to a strategic competitive advantage.
• The use of information systems stimulates new approaches when making decisions.
As mentioned earlier, the means of the answers of the survey will be used to test the propositions.
Having a strategic advantage is one of the reasons to have an information system. For this reason, the participants were asked about the contribution of the information system to the strategic competitive advantage, which is the first proposition. The mean of the answers of this proposition is 3.9, as can be seen in the appendix. The majority of the participants agreed of highly agreed with this statement, 48 percent and 22 percent respectively. Mostly of the other participant were indifferent (28 percent), while only 2% percent disagreed. No one strongly disagreed with the proposition.
After performing the t-test, it can be concluded that the difference of the mean is significant, whereas the significance-level is 0.000.
An information system could lead to new approaches when making decisions. To examine this proposition, it has been included in the survey. The mean of the answers of this proposition is 3.5. The majority of the participant were either indifferent (42 percent) or agreed (40 percent) with the proposition. A minority (10 percent) highly agreed with the proposition, whereas 6 percent disagreed with the proposition. Only 2 percent strongly disagreed with the statement.
After performing the t-test, it can be concluded that the difference of the mean is significant, whereas the significance-level is 0.000
Both the propositions had a mean-value higher than 3, using the t-test it proved that the difference is significant. The values fulfilled the necessary requirements, so the second hypotheses cannot be rejected.